Oil Surge Above $100 Ignites UK Inflation Fears and Rate Hike Debate

Oil prices surged above $100 on Monday as Middle East tensions escalated, sending shockwaves through global markets and fueling concerns over UK inflation.

The Brent crude futures rose by about 2.8% to $107.54 a barrel in early trading, while West Texas Intermediate gained 2.9% to $102.93. The sharp increase has renewed debate over whether the Bank of England will raise interest rates before the end of 2026.

The Saudi East-West Pipeline remains shut after a drone attack, with industry sources warning that up to 4% of global oil supply could be at risk if it stays offline. Meanwhile, tensions have risen around the Strait of Hormuz, another major oil transit route, following a projectile strike on a vessel and Houthi forces reaching Perim Island.

Bank of England Governor Andrew Bailey has cautioned against treating a rate increase as guaranteed, saying future decisions will depend on economic data and events in the Middle East. Analysts now see a greater chance of a rate hike later this year, with markets pricing in a risk premium linked to concerns over further energy price increases.